Why do we love real estate so much?
1) Real Estate is never purchased in units; we buy a property as a whole. So it is a major purchase, and the initial commitment to investment is a large amount, like Rs 50 lac, Rs 1 cr, or even more.
2) Secondly, we have a lot of patience with real estate because we stay in the house we buy. So the period of holding is usually very long. Rs 1 cr becoming Rs 2.5 cr in 15 years seems extremely satisfying. However, the returns are just 6.3%. But what excites us is the incremental Rs 1.5 cr profit made. The absolute number gives us a dose of Dopamine. This makes us fall in love with real estate.
3) Financial Assets, on the other hand, are almost always invested in small numbers, like Rs 1 lac, Rs 5 lac, or at the most Rs 10 lac. Even if Rs 1 lac doubles in 7 years, it rarely makes you feel excited even though it is a 10% return. This is because the absolute amount is small, and you can’t see Rs 2 lac make a huge difference in your life.
4) This is why 6.3% has been defeating 10% returns, and therefore, insurance looks more attractive than mutual funds.
5) We commit ourselves to insurance, real estate, and gold but not to financial assets.
6) It is a known fact that although investments produce awesome returns, investors make only a fraction of it as they leave the investment before it has fully matured.
7) No wonder they say that the investor is their own biggest enemy.
I rest my case.
